Comment: Innovation without borders

More than ever before, technology and innovation are key to success in retail. And one of the main reasons they are so essential is because digital-savvy consumers are becoming increasingly hard to please.

The challenge of giving consumers what they want is neatly illustrated by the impact that media-streaming services such as Netflix and Spotify have had on retail. When consumers began streaming movies and songs instantly – having paid for them through a monthly subscription – they wondered why they couldn’t get a similar level of choice and convenience when they restocked their groceries and household goods.

Industry commentators look at Amazon's Dash and Echo services and believe that these are going some way toward providing the same convenience as media-streaming platforms. All customers have to do is press a button, or say out loud what they want, and the products they need are delivered to their homes, often in a matter of hours.

The problem is, for most retailers, that following the lead of innovators like Amazon and Alibaba is not an easy task. You only have to look at the skills such companies are hiring to understand the investment they are making in innovation: machine learning science, natural language processing, quantum computing. Building a capability in areas like these represents a long-term investment that is beyond the reach of many mid-size retailers.

As a result, a growing number of retailers are taking a bold new approach: they are making acquisitions and forging partnerships with innovative tech start-ups.

Taking the innovation pilgrimage

All innovation begins with interest in what’s going on beyond the boundaries of the organisation. So senior retail executives are visiting start-up communities to hear their ideas first hand. In doing so, they are discovering the new business models that could reinvigorate their own offerings.

Whether it’s Silicon Valley or Silicon Alley, Silicon Docks or Silicon Roundabout, the world is dotted with creative centres where new technologies are being developed and put into practice. To discover the concepts that will drive the next transformation in their sector, retail executives need to first engage with the inhabitants of these hubs – even if their ways of working and ideas are very different from those they are used to.

To buy or to partner?

To harness the most disruptive business models under development in the start-up ecosystem and bring onboard the expertise of start-ups, larger retailers are looking to acquire tech businesses outright.

But an acquisition strategy reduces your options and flexibility – and few companies can afford that level of investment on an untried new business model. The sheer volume of emerging technology means that businesses must be careful not to put all of their capital into one idea, which could become irrelevant when a better technology is developed elsewhere.

This management of risk is driving some retailers toward partnering: for mid-size retailers, it may make more sense to ‘borrow’ expertise rather than buy it. Over time, we’d expect more and more retailers to take this route. Partly why the partnership works is because it’s a win-win for both parties: retailers access the most radical new ideas; start-ups benefit from the business experience and established networks of their new partners. Partnerships can also be regarded as a kind of trial, giving both parties the opportunity to see whether the two organisations have a cultural fit before committing to a more substantial investment.

Getting the measure of innovation

In the past, retailers launched a new technology in one location and, if it was successful, rolled it out to the others. Today they need to be more scientific about assessing what works and what doesn’t, which means investing even more time in measuring impact and net results. It also means being ruthless if an experiment doesn’t live up to its early promise. If an innovation doesn’t drive foot traffic, or sales, or profit, then it should be allowed to fail so the business can move on to something better. It’s also worth remembering that you can learn a great deal from experiments that don’t succeed, making the process valuable even if it doesn’t work out as planned.

Adopting a more experimental mindset isn’t easy, but rapid experimentation and recognising and shutting down failure will be something to embrace in the future.

Across the retail sector, businesses know they need to innovate if they want to avoid disruption. So we can expect to see the trend of acquiring or partnering with start-ups continue. Regardless of the specific approach they take, the first priority is the same: learn to explore the wider world of innovation, discover what start-ups have to offer, and then measure the results in a way that makes sense for your business.